The Andorran government published in the Official Journal of Andorra details of a number of tax changes affecting both personal and corporate taxation, with the principal changes being introduced to the corporate tax regime.
The revisions and amendments to the tax regimes have been introduced with the aim of encouraging enterprise and developing the Andorran economy while lending support to family enterprise and business in Andorra.
1. Personal Taxation
The changes to Andorran personal income tax are a refinement of the existing legislation with the intention to eliminate double taxation within Andorra and external international taxation between Andorra and another tax jurisdiction.
On the disposal of immoveable assets, ie real estate, taxpayers now have the option to reduce their liability to income tax by an amount equal to the capital gains tax paid on the property transfer. Subject to the proviso that the gain is treated as earnings for income tax purposes in Andorra.
In a further change, reliefs granted to taxpayers under a double tax treaty (DTA) between Andorra and another state are limited to the amount of tax paid, subject to the specific provisions of the applicable DTA.
Furthermore, in cases where a taxpayer has been exempted from the payment of tax by virtue of a relief or rebate, the tax that would have been paid cannot be claimed as a credit in the other tax state.
The provision that previously treated non-financial contributions to family companies by family members as neither a capital gain nor a loss has been repealed. This is consistent with the introduction of the new corporate reorganisation scheme which we consider below.
2. Corporate Taxation
The Andorran Corporation Tax system has been subject to review and the introduction of a number of beneficial revisions.
An Andorran registered company that receives dividends or other income as a result of equity it holds in another entity is now permitted to treat such income as exempt for tax purposes, providing certain conditions are met regarding the minimum levels of investment and equity holding.
A new Corporate Reorganisation Law introduces a special scheme to facilitate mergers between entities, business spin-offs, exchange of shares and the return of assets. The special scheme provides tax breaks to Andorran residents whether corporate or private individuals provided that the assets transferred are related to a permanent establishment in Andorra or relate to an entity with Andorran tax residence.
The scheme may be of particular interest to family groups seeking to reorganize their existing structure while enjoying tax neutrality, subject to compliance with the various conditions for the application of this special scheme.
Provisions have also been introduced to eliminate double taxation between states under the terms of an applicable DTA. The relief being limited to the maximum amount of tax paid by the Andorran company, which cannot exceed the tax that would otherwise have been payable in Andorra.
However, the option that allowed small business to apply a preferential tax rate on their establishment has been withdrawn together with the special objective assessment scheme.
The changes come into effect for the tax year starting after 1 January 2017.
If you have any queries about personal and corporate tax changes in Andorra please contact Philippe Ogier at p.ogier@rosemont.ad
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